Category Archives: Estate Planning

September 3, 2019

General Observations

Death and dying are issues typically overseen by the states. There are very few federal programs to help with burial as compared with numerous federal programs for eldercare. Only when death is a consequence of participation in a federal program is it covered. For example, assistance for burial is covered by Social Security, the Department of Veterans Affairs for veterans, the Department of Defense for military and some minimal support from Medicaid through Medicaid matching funds for states.

States, counties and cities themselves typically offer little assistance for burial unless the deceased is indigent and no funds can be found to pay for cremation or burial. And in many states, the only indigent people who are covered are those who die and the body remains unclaimed. In these cases, local county governments have no recourse but to cover the cost of a cremation. There are some exceptions to this general practice of no support with some states, but over the years more and more states have opted out of programs to help families with burial costs.

By and large, responsibility for funerals and burial or cremation rests with the family. It is therefore very important when planning for the final years of life to have money set aside or available for death. We will discuss below a number of community support options for those who do not prepare. In general, very few community or government assistance programs will pay for a burial. Cremation is generally the rule. A funeral service is optional for the family but typically not paid for with assistance funds.

Social Security Death Benefit

You may receive a one-time payment of $255 when a family member dies, depending on your relationship to them and how long they have worked. Generally, only surviving spouses and children of deceased workers qualify for the one-time death benefit. In addition, the deceased family member must have worked long enough to be insured under Social Security, but it doesn’t matter if they were already collecting Social Security or not.

The death benefit payment is made to the surviving spouse living with the deceased person at the time he or she passed, or if there is no surviving spouse, the payment is made to a child of the deceased person. Spouses who are not living together when one spouse dies may still receive the death benefit if they were eligible for benefits on the deceased spouse’s earnings in the month the spouse passed. If there is no surviving spouse or child who qualifies for the payment, then no payment will be made.

This is a one-time, lump sum benefit; however some survivors may qualify for a monthly benefit in addition to the one-time death benefit. You must apply for the lump-sum death benefit within two years of the family member’s death.

In addition to the one-time payment, certain family members may receive a monthly benefit for a deceased person. For widows or widowers without dependents, this amounts to receiving the larger of the two social security benefits if both were receiving benefits or receiving the deceased person’s benefits if the survivor was not receiving any. The following family members may qualify for Social Security survivor benefits:

a widow or widower, beginning at age 50 if disabled or 60 is not disabled;

a widow or widower who is caring for your child under the age of 16, regardless of the age of the widow or widower,

unmarried children of the deceased also qualify if they are under age 18 (or age 22 if they are disabled).

in some cases, even grandchildren, step children or adopted children may qualify for survivor benefits.

If you are divorced, you may qualify for survivor benefits on an ex-spouse if you were married for at least 10 years, and you are age 60 or older when your ex-spouse passes (you only need to be age 50 if you are disabled).

You should notify Social Security and apply for Social Security benefits right away after a family member has passed. To do so, you can call the Social Security Administration or visit the closest office to you. You will need to provide proof of death (death certificate or proof from a funeral home), your Social Security number and your deceased family member’s Social Security number, your birth certificate, marriage certificate if married, divorce papers if you are divorced, and income information for the deceased family member (from W-2s or income tax returns) for the most recent year

Veterans Death Benefits

These monetary benefits are for veterans who were receiving disability income from either Disability Compensation or Veterans Pension.

SERVICE CONNECTED DEATH

$2,000

NON-SERVICE CONNECTED DEATH (Reimbursement; veteran dies while hospitalized by VA)

$762.00

NON-SERVICE CONNECTED DEATH (Reimbursement for Veterans not hospitalized by VA)

$300.00

NSC DEATH STATE CEMETERY (Paid to a state veterans cemetery for the plot/burial)

$762.00

NSC DEATH PLOT ALLOWANCE (This amount will be paid to reimburse for a private-paid plot)

$762.00

A service-connected death is one where the veteran was receiving monthly payments for Disability Compensation and the death was due to the disability or condition for which the veteran was receiving pay. It is also possible to receive a service-connected death if the disability or condition was not the direct cause but the disability or condition contributed substantially to the death.

A non-service-connected death is one where the veteran was receiving monthly payments for Disability Compensation or Veterans Pension but the death was due to some other cause not related to the disabilities or conditions for which the veteran was receiving pay.

It should be noted that generally a non-service-connected death can produce $1,062 a month if the survivors have to pay for a funeral plot. Note that if the veteran died while hospitalized by VA and the survivor has to pay for a funeral plot the total amount available is $1,524.

Disaster Associated Burial Benefit

The most tragic disaster-related loss imaginable is that of a loved one. Under the Individuals and Households Program’s (IHP) Other Needs Assistance (ONA) provision, an applicant may qualify for certain eligible funeral expenses.

FEMA Funeral Assistance is provided to help with the cost of unexpected and uninsured expenses associated with the death of an immediate family member when attributed to an event that is declared to be a major disaster or emergency.

Eligible funeral expenses may include:

Cost of casket

Mortuary services

Transportation of the deceased and/or up to two family members into the area to identify the decedent (if required by state/local authorities)

Two Death Certificates

Burial plot

Interment or cremation

Cost of re-interment if disinterment is a) caused by the declared disaster, and b) occurs in a family cemetery on private property

Eligibility Criteria

Typically, federal and state personnel at the FEMA Joint Field Office review the supporting documentation from the applicant and payments are approved by the Federal Coordinating Officer (FCO) or designee and his/her state counterpart.

To be eligible for funeral assistance, applicants must provide:

A death certificate for the decedent

Documentation from a designated, authoritative state or local entity (attending physician, Medical Examiner’s office, or Coroner’s Office as appropriate) that attributes death or the injury causing death to the declared emergency or major disaster

Proof that the applicant is the official “next of kin” as defined by the appropriate state or local authority

Confirmation that funeral expenses have not been paid for by other resources (Social Security and Veterans Affairs benefits, for example, would duplicate Funeral Assistance and would be subtracted from an award)

Evidence of an unmet funeral expense (a receipt from a service provider)

Ineligible Costs

Not all applicants reporting funeral expenses will be eligible for Funeral Assistance. Some common reasons for ineligibility include:

The death was not attributed to the declared incident

Funeral expenses are fully covered by other sources of assistance

Insufficient and/or incomplete documentation

If disinterment was the result of the disaster, FEMA will provide Funeral Assistance only for a disinterred coffin under the following conditions:

The unearthed coffin(s) were located in a family cemetery on their private property

The coffin(s) were removed from the ground by the declared disaster

Private Sector and Community Programs

There are a number of ways where the private sector and certain community groups or church denominations will help cover a burial and possibly a funeral.

Taxpayer Interment Benefits

Local taxpayers in many cities and counties qualify for reduced interment costs in cemeteries.

Church Members and Members of Civic Organizations Benefits

Church members and members of civic and other organizations may qualify for funeral assistance or for reduced costs. Some church denominations will also provide burial for their members in the church cemetery. This is principally for Greek Orthodox, Jewish and Catholic faiths but may include other faiths as well.

Crime Victims’ Compensation Fund

A Crime Victims’ Fund often provides funeral benefits in instances of death by a criminal act. There are many crime victim funds across the United States. Most are funded by the state or county. Ask the prosecutor’s office in your area or do a computer search using the name of your county or city and the term “crime victim fund”.

Death Benefits from Pensions, Societies and Other Organizations

Organizations affiliated with some professions, such as the Railroad Retirement Board, as well as some social groups, unions and pensions, offer allowances to defray funeral costs. Some organizations and pension funds include an automatic group life insurance policy on their members. This may include unions and other fraternal organizations as well as veterans service organizations. These may be small amounts of coverage such as $1,000, but adding up benefits from a number of sources might produce enough for a burial or cremation. Here are some examples of funds that will defray costs.

Workman’s compensation, if death was work-related,

Civil service (federal, state, county or local) retirement pension fund,

Federal Employees Life Insurance (Includes a lifetime benefit even after retirement)

Railroad fund,

Teacher’s fund,

Miner’s benefits fund,

Trade union fund,

Credit union fund,

Fraternal organizations fund.

Discounts or Gratis Services from Funeral Homes

For families who simply cannot come up with enough money to bury a loved one, funeral homes may be surprisingly accommodating. Even though they may not advertise it, funeral homes may offer charity for a number of people in the community when no other way to bury a loved one is possible. This might include steep discounts, extended monthly payment plans, extremely affordable economy plans and possibly even providing the burial — in this case very likely a cremation — for free.

July 31, 2019

courtesy of Elder Law Answers:

As cryptocurrencies like BitCoin, LiteCoin, and Ripple increase in circulation and longevity, estate planning attorneys are likely to see more clients acquiring these assets and incorporating them into their estate plans. As interest in cryptocurrencies has increased, the IRS is paying more attention to these kinds of assets. For example, just last year, a popular cryptocurrency exchange called Coinbase was court-ordered to release transaction information on approximately 13,000 of its users to the IRS, indicating that the IRS is beginning to monitor cryptocurrency transactions closely. Ryan Derousseau, The IRS Is Coming for Your Cryptocurrency Profits, Money Time (2018).

Although there is little authority on the tax treatment of cryptocurrency to date, attorneys should be aware of the ins and outs of this specialized property in order to create the best estate plans for clients holding cryptocurrency and properly administer the estates of deceased clients who owned cryptocurrency at their death.

What is Cryptocurrency?

Although over 1,000 different versions of cryptocurrencies exist, the essential hallmarks remain the same for nearly all of them. All Cryptocurrencies, Coinmarketcap.com (2018), https://bit.ly/2deiFHU. At its core, a cryptocurrency is a digital currency that uses blockchain technology to create a decentralized, immutable, public digital ledger. Cryptocurrencies are available only in digital form, which means that in order to use a cryptocurrency one must have access to a computer or smartphone device. The blockchain is a “digital ledger that is shared across a decentralized network of independent computers, which update and maintain it in a way that allows anyone to prove the record is complete and uncorrupted.” Michael J. Casey & Paul Vigna, The Truth Machine: The Blockchain and the Future of Everything (2018). Using this digital ledger, individuals can earn, purchase, and sell digital currency, or “cryptocurrency,” through a network of independent computers that track all of the payments through complex algorithms.

Transfers of cryptocurrency are accomplished through the blockchain technology. The transferor enters the transferee’s public address where the transferee will receive the cryptocurrency, along with the transfer amount and an optional note into the digital ledger. Once those pieces of information are entered, the transferor simply needs to press “send,” and the decentralized network of independent computers will validate the transfer. The transferee need not to do anything besides share his public address. Once the transfer is validated, the ledger is updated to reflect that the transfer has been made. No other documentation is required for the transfer to be complete.

Although cryptocurrency can be treated under various laws like conventional fiat currency (i.e., cash), the IRS’s current position is to treat cryptocurrency as property and not currency for tax purposes. US Dept. of the Treasury, Internal Revenue Service Notice 2014-21, Washington: GPO (2014), https://bit.ly/220DnKP. In a 2014 notice (Notice 2014-21), to date the most comprehensive guidance from the IRS on cryptocurrency tax issues, the IRS stated that “[f]or federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.” Id. As a result, when creating an estate plan or administering an estate, it is important to view any cryptocurrency in an estate as property rather than currency. Among other things, this means that the transfer of cryptocurrency can result in losses or gains. For example, cryptocurrency can be converted into fiat currency, which may result in a loss or gain. Unlike stock, however, cryptocurrency does not pay dividends, and unlike bonds or certificates of deposit, cryptocurrency does not accrue interest either. Rather, cryptocurrency increases (or decreases) in value like real estate. The market capitalization for all cryptocurrencies as of the date of this article is approximately $122 billion. Sam Ouimet, Bitcoin Pops Above $3,700 As Crypto Market Flashes Green, Coindesk (2019), https://bit.ly/2tbjlTX.

Why Are Some People Interested in Cryptocurrency?

Cryptocurrency has characteristics that are enticing to certain classes of risk-taking investors, traders, or speculators. Because of the semi-anonymous nature of the cryptocurrency market, there are typically few to no privacy concerns for individuals making transactions with cryptocurrency. Compared to bank accounts, there are few tax or other regulatory reporting requirements for account holders. This itself has attracted numerous holders. Advocates say that because cryptocurrency relies on the distributed ledger of blockchain technology, it protects holders from the risks associated with cyberattacks on banks and other traditional holders. This, too, is attractive to some.

People have started to use cryptocurrency as a flexible holder of value. For example, cryptocurrency can be used to secure loans. Will Yakowicz, Bitcoin Millionaires Have a New Way to Cash Out Without Ever Selling a Single Bitcoin, Inc.com (2018), https://bit.ly/2HMAjBd. Loans backed by cryptocurrency allow for cryptocurrency owners to put this asset to use without “cashing out” their cryptocurrency and therefore potentially incurring negative tax consequences as a result (discussed in detail below). Another method of investing cryptocurrency holdings and deterring taxes is through an individual retirement account (IRA) that owns 100 percent of an LLC invested in cryptocurrency. Jeff Vandrew Jr., How to Hold Cryptocurrency in a Retirement Account—Without Fees, Bravenewcoin (2018); see also Investing in Cryptocurrency using an IRA, NuView Trust Company, https://bit.ly/2V2zjfp.

To its backers, cryptocurrency is the money of the future and, just as platforms like Uber, Airbnb, and eBay have disrupted and replaced traditional middlemen, so too will cryptocurrency replace banks and other traditional financial intermediaries. In the meantime, cryptocurrency fans believe there are appreciation opportunities available to those who purchase at what they perceive to be the early stages in the life of this asset class.

What Are Some of the Downsides to Cryptocurrency?

Cryptocurrency is a relatively new type of asset that began when the Bitcoin network came into existence in January 2009. Benjamin Wallace, The Rise and Fall of Bitcoin, Wired (Nov. 23, 2011). As a result, there are many issues surrounding cryptocurrency that have yet to be settled. On May 30, 2018, the American Institute of Certified Public Accountants (AICPA) sent a letter to the IRS requesting additional guidance on the taxation of cryptocurrency, beyond its initial 2014 notice. Annette Nellen, Re: Updated Comments on Notice 2014-21: Virtual Currency Guidance (2018), https://bit.ly/2LWcRTL. This is the second letter of this nature AICPA has sent to the IRS, the first having been sent in 2016. The ABA’s Tax Section also sent a similar letter seeking advice from the IRS on the taxation of certain aspects of cryptocurrency on March 19, 2018. Karen L. Hawkins, Re: Tax Treatment of Cryptocurrency Hard Forks for Taxable Year 2017 (2018), https://bit.ly/2veucOg.

Some of the guidance sought in these letters includes what types of retirement accounts may hold cryptocurrency, whether a charitable contribution of cryptocurrency valued in excess of $5,000 will be treated the same as contributions of publicly traded stock, which do not require a qualified appraisal, and whether taxpayers may choose either the specific identification method or the first-in-first-out method as the accounting method for computing capital gains and losses. Id. To date, many of these issues remain unresolved.

One major taxation aspect that the IRS has addressed regarding cryptocurrency is capital gains and losses. Because the IRS treats cryptocurrency as property for tax purposes, an exchange or sale of cryptocurrency can lead to capital gains or losses. Failure to report these and other cryptocurrency transactions on a timely-filed income tax return can lead to fines and even possibly prison time, as taxpayers were warned by a letter released by the IRS in March 2018. Internal Revenue Service, IRS Reminds Taxpayers to Report Virtual Currency Transactions, IRS.gov (2018), https://bit.ly/2pGC34F. As a result, any trust holding cryptocurrency that wishes to liquidate cryptocurrency assets in order to make a distribution to a particular beneficiary should be aware of and properly report any capital gains or losses that ensue from the liquidation.

In addition, the SEC guidance on cryptocurrency is a work in progress. As of now, the SEC says that Bitcoin is not subject to regulation as a security, but it has noted that many cryptocurrencies are subject to regulation as securities, even as many of those issuers have not made the required regulatory filings. Louise Matsakis, Rest Easy, Cryptocurrency Fans: Ether and Bitcoin Aren’t Securities, Wired (June 14, 2018), https://bit.ly/2JQYPhZ. See also Bob Pisani, Bitcoin and Ether are not Securities, but Some Initial Coin Offerings May be, SEC Official Says, CNBC (June 14, 2018), https://cnb.cx/2sXrRGh.

Making Gifts with Cryptocurrency

Some individuals may be interested in making gifts of cryptocurrency in order to reduce income taxes accruing on their holdings. Even better, by donating appreciated cryptocurrency to qualified charities, the taxpayer can receive a charitable deduction on her income taxes for the gift and avoid paying capital gains taxes on the appreciation. Robert W. Wood, Tax-Free Ways to Transfer Bitcoin and Other Crypto: Expert Take, Cointelegraph (2018), https://bit.ly/2BCjzcm. In fact, charitable organizations sometimes welcome donations in the form of cryptocurrency, as the transfer of cryptocurrency requires less red tape than a typical wire transfer. 12 Nonprofits that Accept Cryptocurrency, [Blog] WeTrust (2018), https://bit.ly/2TH5kYO.

As noted earlier, the IRS’s current position treats cryptocurrency as property. See Notice 2014-21, supra.Therefore, gifts of cryptocurrency should be treated for tax purposes as gifts of property, in which the donee receives the donor’s cost basis in the property. As a result, when making a gift of cryptocurrency, it is important to properly track the basis of the gift. According to Notice 2014-21, a taxpayer’s basis in cryptocurrency that the taxpayer receives for goods and services is equal to the fair market value of the cryptocurrency on the date the taxpayer received it. Id.

For tax purposes, best practices for giving cryptocurrency include getting an appraisal of the fair market value of the cryptocurrency being gifted and executing a contemporaneous memorandum that includes details of the gift, such as the date of the transfer, the donor’s basis in the gift, and the fair market value of the gift at the time of the transfer, because blockchain transactions are anonymous. Although there is no authority on this issue, the memorandum should also include that the donor has given up control or dominion over the donee’s cryptocurrency address to verify that the gift is complete and, if the gift is being made to a charitable organization, that the gift meets the requirements of IRC § 170(f), to record that it qualifies for an income tax charitable deduction.

Cryptocurrency in Estates

Cryptocurrency has at least one procedural advantage over other financial assets in estate administration. Unlike a traditional bank or broker, which typically requires executors to produce an original death certificate and letters testamentary in order to take control of accounts in the deceased owner’s estate, cryptocurrency merely requires the fiduciary to have the decedent’s passcode to access and transfer the account for estate administration purposes. Sudhir Khatwani, Bitcoin Private Keys: Everything You Need to Know, CoinSutra—Bitcoin Community, (2018) https://bit.ly/2VHjbo7. The fiduciary then would hold the complex, multi-character passcode needed to access, invest and distribute the estate’s cryptocurrency assets to the beneficiaries as needed and as permitted by the relevant estate planning document. J.P. Buntinx, What Are Cryptocurrency Trusts, NullTX (2018), https://bit.ly/2Jo77l5. Because cryptocurrency offers ease of administration, there are fewer checks on a fiduciary who is handling a cryptocurrency account. Individuals who own cryptocurrency or have a trust that holds cryptocurrency should be exceptionally cautious when selecting an executor or trustee because the fiduciary could use the passcode to access and manage the cryptocurrency account, unlike a traditional bank account, which provides more oversight. In addition, should the fiduciary make a transfer of cryptocurrency that is not authorized by the relevant estate planning document, the transfer could be traced but would be nearly impossible to recover.

Although providing the passcode to the fiduciary may seem like the easiest method, it is important to ensure that doing so does not violate any federal or state privacy laws, terms of service agreements, or computer fraud and data protection laws. Such laws may include the Uniform Prudent Investor Act, the Uniform Prudent Management of Institutional Funds Act, the Federal Computer Fraud and Abuse Act, and the Revised Uniform Fiduciary Access to Digital Assets Act. In addition, by requiring only the passcode to access the cryptocurrency account, there is no way to ensure that a former fiduciary who has been replaced by a successor fiduciary does not access the account despite the lack of fiduciary authority to do so.

There are certain technological controls that can be employed to reduce this risk. “Cold storage” is a method used to keep cryptocurrency account information offline, adding an extra layer of security for cryptocurrency accounts. How to Setup Bitcoin Cold Storage, Bitcoin.com (2017), https://bit.ly/2A6I1ic. Through cold storage, a USB drive or similar device contains the account’s passcode concealed from users and privately transmits the passcode without the user knowing the passcode personally in order to access the account. In this way, a trust’s cold storage USB drive can be handed from a former fiduciary to the successor fiduciary without the former fiduciary retaining the passcode and without either fiduciary directly knowing the passcode themselves. Even with cold storage, fiduciaries should still take care to not run afoul of any terms of service that apply to the cryptocurrency account.

One downside to the cold storage method is that it is unclear whether the device or the cryptocurrency itself constitutes tangible personal property in an estate. Although Notice 2014-21 provides that cryptocurrency is “property” for tax purposes, it is silent on the nature of that property. As a result, until these issues have been more fully settled, it is important to carve out this exception when disposing of tangible personal property through an estate planning document.

In addition, because the IRS treats cryptocurrency as property rather than currency, it will most likely require an appraisal for estate tax purposes. Notice 2014-21 provides that the fair market value of cryptocurrency is based on the exchange rates at the relevant date for appraisal purposes. See Notice 2014-21, supra.

Estate Planning Techniques

When planning an estate, it is crucial to obtain information on any cryptocurrency held by the individual and to include language in the estate planning documents that permits fiduciaries to access, retain, and manage the cryptocurrency without extraneous liability. Fiduciaries should be made aware of the existence of cryptocurrency in the estate and should inquire with the decedent’s family members and financial advisors to determine whether the decedent owned cryptocurrency at death. Properly drafted estate planning documents will also permit fiduciaries to access the decedent’s digital assets, such as laptops and cell phones, which may have information about any cryptocurrencies owned by the decedent at death. It is important to provide these powers to the fiduciaries in an estate in order to allow the fiduciaries to access the decedent’s cryptocurrency after death. Even if the decedent provides the fiduciary with her cryptocurrency passcode during her life, the fiduciary’s use of the passcode after death without the proper permissions in the decedent’s estate planning documents and related laws could cause the fiduciary to violate federal or state privacy laws, terms of service agreements, or computer fraud and data protection laws. It is generally not recommended that an individual share her passcode with others for security reasons, but once a passcode is lost it is virtually impossible to recover, so individuals with cryptocurrency should consider writing down the passcode and storing it in a secure but accessible location (or multiple locations).

In theory, to fund a trust with cryptocurrency directly, one could simply provide the trustee with the passcode or the cold storage device for the cryptocurrency account to access and manage the account on behalf of the trust. As noted earlier, however, it is important to ensure that doing so does not violate any applicable laws or terms of service agreements. Because cryptocurrency’s history thus far is short—about ten years as of the date of this article—and volatile, it may be more prudent to hold cryptocurrency as a small part of a larger trust portfolio. Benjamin Wallace, The Rise and Fall of Bitcoin, Wired (Nov. 23, 2011). At a minimum, a cryptocurrency investor who wants to establish a trust holding solely cryptocurrency should release a trustee from any duty to diversify and provide the trustee with the necessary indemnification. If the trust’s cryptocurrency were held in a larger portfolio with a financial institution, the institution would simply change the trustees on its forms as needed.

Currently there is no authority preventing the funding of any trust with cryptocurrency or directing how such transfers should be memorialized for tax purposes. Ivan Taback & Nathaniel Birdsall, The Bitcoin GRAT, Wealth Management (2014), https://bit.ly/2w2lAu4. Therefore, it is important to prepare contemporaneous memoranda recording any transfer and to ensure that the donor has not retained any control over the transferred cryptocurrency (for example, by having access to the trust’s private cryptocurrency key). Id.

Leaving aside the all-important fact that the value of cryptocurrencies has to date proven extremely volatile, certain intermediaries have proven untrustworthy, and its regulatory framework is unclear, a believer in the future of one or more particular cryptocurrencies could find them well-suited in an irrevocable family trust that will pass the appreciated property to later generations. An individual who owns cryptocurrency could establish an irrevocable family trust with her children, grandchildren, and later generations as beneficiaries and fund it with a variety of assets, including her cryptocurrency holdings, as briefly described above. If cryptocurrencies increase in value over time, the appreciated value of the cryptocurrency in the trust would pass to the grantor’s descendants free of any estate taxes or further gift taxes. In this way, greater wealth can be passed down to later generations while avoiding unnecessary death taxes that would be incurred if the cryptocurrency had not been placed in a trust.

A grantor retained annuity trust (GRAT) may also be a useful vehicle for cryptocurrency because of its volatility. A GRAT funded with cryptocurrency is relatively easy for a trustee to administer. Id. A GRAT can be funded with cryptocurrency by employing the best practices for cryptocurrency transactions recommended above, including a qualified appraisal of the value of the cryptocurrency transferred to the GRAT upon which the annuity amount of the GRAT will be based. If the trustee also opens up a simple bank account for the GRAT at the time of funding, the trustee can use the power of substitution to exchange the cash in the bank account for cryptocurrency in the GRAT that has appreciated significantly, thus locking in the increased value of the cryptocurrency. Id.

An annuity payment is made with cryptocurrency by the trustee sending it to the grantor’s public cryptocurrency address as briefly described above. Once an actuary determines the annuity amount in regular currency, the trustee will need to determine how much cryptocurrency is necessary to satisfy the annuity payment. Because the IRS has deemed cryptocurrency to be property for tax purposes, the value of cryptocurrency for these purposes would be the price at which the property would change hands between a willing buyer and a willing seller on the date of the transfer. Treas. Reg. 25.2512-1 (2019). Best practices for determining the value of the cryptocurrency needed to satisfy the annuity include taking a weighted average of the mean between the highest and lowest cryptocurrency prices from multiple cryptocurrency exchanges. Taback & Birdsall, supra.

Conclusion

Cryptocurrency is a new asset class that estate planning attorneys are likely to see in their clients’ portfolios in the future. Although the IRS has not set forth clear guidance on every tax aspect of these assets, attorneys should take care to ensure that they are properly treated in the estate plan. It is important to include language in every will and trust that permits the fiduciaries to access the digital records necessary to properly administer any cryptocurrency in the estate. It is also important for clients to select trustworthy fiduciaries who will properly manage the cryptocurrency and follow the client’s intent. With proper planning and attention to the latest publications from the IRS regarding this asset, estate planning attorneys can help their clients who are interested in this new asset class.

July 1, 2019

Current and former federal employees and military personnel soon will have more options when it comes to withdrawing money from their retirement accounts.

The Thrift Savings Plan is on schedule for a September launch of new account withdrawal options that will remove restrictions that have long been a sore point for many investors, TSP officials said Wednesday at a meeting of the program’s governing board.

Those changes — most applying to those who have left the government but some applying to those still working — result from legislation enacted in late 2017 that gave the TSP two years to carry them out. The Thrift Savings Plan is a 401(k)-style retirement savings plan for federal employees and military personnel, with 5.9 million account holders who had $591 billion on investment as of the end of April.

Although those who leave the government for retirement or other reasons may leave their accounts in place, the limited withdrawal choices have been cited as a main reason so many transfer the money to an individual retirement account or other tax-favored savings plan instead — 36 percent do so within a year.

Account holders are “going to have a lot better withdrawal options. They’ve been very limited in the past and I think it’s going to be very beneficial,” said board chairman Michael Kennedy, a managing director in the Atlanta office of Korn/Ferry International, a management consulting firm.

Although the Thrift Savings Plan is a federal agency, it is self-funding and operates much like a corporation, with a chief executive officer overseen by a governing board.

Currently, account holders who leave federal employment or active military duty have three basic withdrawal options that they can use alone or in combination: take a lump-sum cashout or transfer to another account, purchase an annuity, or draw out equal monthly payments.

However, only one partial withdrawal is allowed, and any second withdrawal choice must apply to the entire remaining balance. Further, for those who have both traditional pretax balances and “Roth IRA” after-tax balances, withdrawals must be taken proportionately from both.

Under the new policies, to be effective Sept. 15, those who separate from the government will be allowed to take partial withdrawals as often as once every 30 days, and those with both types of balances will be allowed to take the money from one or the other in addition to prorating.

Further, installment payments could be taken quarterly or annually in addition to monthly, and the amounts could be changed at any time rather than just once a year.

One change will affect current employees and active duty military personnel who are over age 59½ . They may now may take a one-time “age-based” withdrawal without a tax penalty, which forfeits the right to take a later partial withdrawal. Instead, up to four age-based withdrawals per year will be allowed, with no impact on post-separation withdrawals.

Ravindra Deo, executive director of the board, said the changes could motivate some investors to decide to stay with the Thrift Savings Plan since “they want more flexibility and this will give it to them.” He said that by transferring out, investors are passing up advantages including investment fees that are much lower than those charged by mutual funds and other investment vehicles.

However, some investors still may have good reasons to move their money out of the TSP, he said, including those with only small accounts they wish to close out and, by contrast, those with substantial savings plus other investments that they want to consolidate. For them, “I don’t know if this will make enough of a difference” to motivate them to stay, he said.

“This is going to be a great benefit for the program and the participants,” said Clifford Dailing, secretary-treasurer of the National Rural Letter Carriers’ Association. “This is a request that we’ve been hearing from our members for some time. Many of them have been putting their money in other investments where they could have better control.”

“I think some have been making bad decisions because of a misunderstanding that once they retire they need to withdraw the account and reinvest it, which is inaccurate,” added Dailing, chair of a separate advisory board of federal employee organizations that met jointly with the TSP’s board.

At the meeting, officials outlined plans to inform account holders about the new options through electronic newsletters, webinars and other communications. Investors will be encouraged to make any changes through a feature being developed for the TSP website, although new paper forms also will be offered.

“We’re trying to make sure we implement it and roll it out the right way,” Kennedy said. “We’ll have to do a real good job of educating people.”

Other changes ahead, officials said, include making mandatory the now voluntary use of two-factor authentication to access an account, offering target-date investment funds in five-year increments rather than the current 10 years, and increasing the default investment for newly hired employees from 3 to 5 percent of salary. The first of those is targeted for later this year, while the other two are projected for July and October 2020 respectively.

July 1, 2019

Parents want their children to be taken care of after they die. But children with disabilities have increased financial and care needs, so ensuring their long-term welfare can be tricky. Proper planning by parents is necessary to benefit the child with a disability, including an adult child, as well as assist any siblings who may be left with the caretaking responsibility.

Special Needs Trusts
The best and most comprehensive option to protect a loved one is to set up a special needs trust (also called a supplemental needs trust). These trusts allow beneficiaries to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose their eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI). The trusts are drafted so that the funds will not be considered to belong to the beneficiaries in determining their eligibility for public benefits.

There are three main types of special needs trusts:

A first-party trust is designed to hold a beneficiary’s own assets. While the beneficiary is living, the funds in the trust are used for the beneficiary’s benefit, and when the beneficiary dies, any assets remaining in the trust are used to reimburse the government for the cost of medical care. These trusts are especially useful for beneficiaries who are receiving Medicaid, SSI or other needs-based benefits and come into large amounts of money, because the trust allows the beneficiaries to retain their benefits while still being able to use their own funds when necessary.

The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect a beneficiary’s access to benefits and the funds can be used to pay for the beneficiary’s supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the “payback” provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members, or to charity, without having to be used to reimburse the government.

A pooled trust is an alternative to the first-party special needs trust. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes, while still maintaining separate accounts for each beneficiary’s needs. When the beneficiary dies, the funds remaining in the account reimburse the government for care, but a portion also goes towards the non-profit organization responsible for managing the trust.

Life Insurance
Not everyone has a large chunk of money that can be left to a special needs trust, so life insurance can be an essential tool. If you’ve established a special needs trust, a life insurance policy can pay directly into it, and it does not have to go through probate or be subject to estate tax. Be sure to review the beneficiary designation to make sure it names the trust, not the child. You should make sure you have enough insurance to pay for your child’s care long after you are gone. Without proper funding, the burden of care may fall on siblings or other family members. Using a life insurance policy will also guarantee future funding for the trust while keeping the parents’ estate intact for other family members. When looking for life insurance, consider a second-to-die policy. This type of policy only pays out after the second parent dies, and it has the benefit of lower premiums than regular life insurance policies.

ABLE Account
An Achieving a Better Life Experience (ABLE) account allows people with disabilities who became disabled before they turned 26 to set aside up to $15,000 a year in tax-free savings accounts without affecting their eligibility for government benefits. This money can come from the individual with the disability or anyone else who may wish to give him money.

Created by Congress in 2014 and modeled on 529 savings plans for higher education, these accounts can be used to pay for qualifying expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. ABLE account programs have been rolling out on a state-by-state basis, but even if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. (For a directory of state programs, click here.)

Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for her family members. In addition, ABLE accounts cannot hold more than $100,000 without jeopardizing government benefits like Medicaid and SSI. If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary, and then the remaining funds will have to pass through probate in order to be transferred to the beneficiary’s heirs.

Get Help With Your Plan
However you decide to provide for a child with special needs, proper planning is essential. Talk to your attorney to determine the best plan for your family.

July 1, 2019

After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most Medicaid recipients, their house is the only asset available, but there are steps you can take to protect your home.

Life estates
For many people, setting up a “life estate” is the simplest and most appropriate alternative for protecting the home from estate recovery. A life estate is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.

Example: Jane gives a remainder interest in her house to her children, Robert and Mary, while retaining a life interest for herself. She carries this out through a simple deed. Thereafter, Jane, the life estate holder, has the right to live in the property or rent it out, collecting the rents for herself. On the other hand, she is responsible for the costs of maintenance and taxes on the property. In addition, the property cannot be sold to a third party without the cooperation of Robert and Mary, the remainder interest holders.

When Jane dies, the house will not go through probate, since at her death the ownership will pass automatically to the holders of the remainder interest, Robert and Mary. Although the property will not be included in Jane’s probate estate, it will be included in her taxable estate. The downside of this is that depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation. The upside is that this can mean a significant reduction in the tax on capital gains when Robert and Mary sell the property because they will receive a “step up” in the property’s basis.

As with a transfer to a trust, if you transfer the deed to your home to your children and retain a life estate, this can trigger a Medicaid ineligibility period of up to five years. Purchasing a life estate in another home can also cause a transfer penalty, but the transfer penalty can be avoided if the individual purchasing the life estate resides in the home for at least one year after the purchase and pays a fair amount for the life estate.

Life estates are created simply by executing a deed conveying the remainder interest to another while retaining a life interest. In many states, once the house passes to the remainder beneficiaries, the state cannot recover against it for any Medicaid expenses that the ife estate holder may have incurred.

Trusts
Another method of protecting the home from estate recovery is to transfer it to an irrevocable trust. Trusts provide more flexibility than life estates but are somewhat more complicated. Once the house is in the irrevocable trust, it cannot be taken out again. Although it can be sold, the proceeds must remain in the trust. This can protect more of the value of the house if it is sold. Further, if properly drafted, the later sale of the home while in this trust might allow the settlor, if he or she had met the residency requirements, to exclude up to $250,000 in taxable gain, an exclusion that would not be available if the owner had transferred the home outside of trust to a non-resident child or other third party before sale.

June 4, 2019

Social Security survivor’s benefits provide a safety net to widows and widowers. But to get the most out of the benefit, you need to know the right time to claim.

While you can claim survivor’s benefits as early as age 60, if you claim benefits before your full retirement age, your benefits will be permanently reduced. If you claim benefits at your full retirement age, you will receive 100 percent of your spouse’s benefit or, if your spouse died before collecting benefits, 100 percent of what your spouse’s benefit would have been at full retirement age. Unlike with retirement benefits, delaying survivor’s benefits longer than your full retirement age will not increase the benefit. If you delay taking retirement benefits past your full retirement age, depending on when you were born your benefit will increase by 6 to 8 percent for every year that you delay up to age 70, in addition to any cost of living increases.

You cannot take both retirement benefits and survivor’s benefits at the same time. When deciding which one to take, you need to compare the two benefits to see which is higher. In some cases, the decision is easy—one benefit is clearly much higher than the other. In other situations, the decision can be a little more complicated and you may want to take your survivor’s benefit before switching to your retirement benefit.

To determine the best strategy, you will need to look at your retirement benefit at your full retirement age as well as at age 70 and compare that to your survivor’s benefit. If your retirement benefit at age 70 will be larger than your survivor’s benefit, it may make sense to claim your survivor’s benefit at your full retirement age. You can then let your retirement benefit continue to grow and switch to the retirement benefit at age 70.

Example: A widow has the option of taking full retirement benefits of $2,000/month or survivor’s benefits of $2,100/month. She can take the survivor’s benefits and let her retirement benefits continue to grow. When she reaches age 70, her retirement benefit will be approximately $2,480/month, and she can switch to retirement benefits. Depending on the widow’s life expectancy, this strategy may make sense even if the survivor’s benefit is smaller than the retirement benefit to begin with.

Keep in mind that divorced spouses are also entitled to survivor’s benefits if they were married for at least 10 years. If you remarry before age 60, you are not entitled to survivor’s benefits, but remarriage after age 60 does not affect benefits. In the case of remarriage, you may need to factor in the new spouse’s spousal benefit when figuring out the best way to maximize benefits.

May 1, 2019

Many people think that estate plans are for someone else, not them. They may rationalize that they are too young or don’t have enough money to reap the tax benefits of a plan. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.

1. Loss of capacity. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs. With a plan, you pick that person through a power of attorney.

2. Minor children. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice.

3. Dying without a will. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy (dying without a will). Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets, and when and how they receive them.

4. Blended families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage or marriages.

5. Children with special needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for care. With a plan, you can set up a supplemental needs trust that will allow the child to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.

6. Keeping assets in the family. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his or her current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and, for example, pass to your grandchildren.

7. Financial security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.

8. Retirement accounts. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs. With a plan, you can choose the optimal beneficiary.

9. Business ownership. Do you own a business? Without a plan, you don’t name a successor, thus risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.

10. Avoiding probate.Without a plan, your estate may be subject to delays and excess fees (depending on the state), and your assets will be a matter of public record. With a plan, you can structure things so that probate can be avoided entirely.

May 1, 2019

Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones. But while joint accounts can be useful in certain circumstances, they can have dire consequences if not used properly. Adding a loved one to a bank account can expose your account to the loved one’s creditors as well as affect Medicaid planning.

Once money is deposited in a joint account, it belongs to both account holders equally, regardless of who deposited the money. Account holders can withdraw, spend, or transfer money in the account without the consent of the other person on the account. Before putting anyone on a joint account with you, you need to be sure you can trust that person because he or she will have full access to the account. When one account holder dies, the money in the account automatically goes to the other account holder without passing through probate.

One problem with joint accounts is that it makes the account vulnerable to all the account owner’s creditors. For example, suppose you add your daughter to your bank account. If she falls behind on credit card debt and gets sued, the credit card company can use the money in the joint account to pay off your daughter’s debt. Or if she gets divorced, the money in the account could be considered her assets and be divided up in the divorce.

Joint accounts can also affect Medicaid eligibility. When a person applies for Medicaid long-term care coverage, the state looks at the applicant’s assets to see if the applicant qualifies for assistance. While a joint account may have two names on it, most states assume the applicant owns the entire amount in the account regardless of who contributed money to the account. If your name is on a joint account and you enter a nursing home, the state will assume the assets in the account belong to you unless you can prove that you did not contribute to it.

In addition, if you are a joint owner of a bank account and you or the other owner transfers assets out of the account, this can be considered an improper transfer of assets for Medicaid purposes. This means that either one of you could be ineligible for Medicaid for a period of time, depending on the amount of money in the account. The same thing happens if a joint owner is removed from a bank account. For example, if your spouse enters a nursing home and you remove his or her name from the joint bank account, it will be considered an improper transfer of assets.

There is a better way to conduct estate planning and plan for disability. A power of attorney will ensure family members have access to your finances in the case of your disability. If you are seeking to transfer assets and avoid probate, a trust may make better sense. To learn more, talk to your attorney.

February 27, 2019

While the new tax law doubled the federal estate tax exemption, meaning the vast majority of estates will not have to pay any federal estate tax, it doesn’t mean you should ignore its impact on your estate plan.

In December 2017, Republicans in Congress and President Trump increased the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. (For 2019, the figures are $11.4 million and $22.8 million, respectively.) The tax rate for those few estates subject to taxation is 40 percent.

While most estates won’t be subject to the federal estate tax, you should review your estate plan to make sure the changes won’t have other negative consequences or to see if there is a better way to pass on your assets. One common estate planning technique when the estate tax exemption was smaller was to leave everything that could pass free of the estate tax to the decedent’s children and the rest to the spouse. If you still have that provision in your will, your kids could inherit your entire estate while your spouse would be disinherited.

For example, as recently as 2001 the federal estate tax exemption was a mere $675,000. Someone with, say, an $800,000 estate who hasn’t changed their estate plan since then could see the entire estate go to their children and none to their spouse.

Another consideration is how the new tax law might affect capital gains taxes. When someone inherits property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If the beneficiary were to sell the property, there could be huge capital gains taxes. Fortunately, when someone inherits property, the property’s tax basis is “stepped up,” which means the tax basis would be the current value of the property. If the same property is gifted, there is no “step up” in basis, so the gift recipient would have to pay capital gains taxes. Previously, in order to avoid the estate tax you might have given property to your children or to a trust, even though there would be capital gains consequences. Now, it might be better for your beneficiaries to inherit the property.

In addition, many states have their own estate tax laws with much lower exemptions, so it is important to consult with your attorney to make sure your estate plan still works for you.

February 5, 2019

Have you considered your pet or pets when planning your estate? If not, you should, according to The Humane Society of the United States, the nation’s largest animal protection organization.

Pets usually have shorter life spans than humans, but people don’t always include their pets in their estate plans. If a pet owner doesn’t make plans for his or her pet, the animal can be left homeless and end up in an animal shelter.

To help pet owners ensure that that their wishes for their pets’ long-term care won’t be forgotten, misconstrued or ignored, The Humane Society has created a printable fact sheet, “Providing for Your Pet’s Future Without You.” The five-page fact sheet, which is available in English and Spanish, provides sample legal language for including pets in wills and trusts, plus suggestions on protecting pets through a power of attorney.

The Humane Society says that all too often, people erroneously assume that a long-ago verbal promise from a friend, relative or neighbor to provide a home for a pet will be sufficient years later. Even conscientious individuals who include their pets in their wills may neglect to plan for contingencies in which a will might not take effect, such as in the event of severe disability or a protracted will challenge.